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Financial literacy or investment experience: which is more influential in

cryptocurrency investment?

Article  in  International Journal of Bank Marketing · June 2021

DOI: 10.1108/IJBM-11-2020-0552

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 Financial literacy or investment experience:

Which is more influential in cryptocurrency investment?

Haidong Zhao, Shanghai Normal University

Lini Zhang, Shanghai Institute of Technology

Citation

Zhao, H. and Zhang, L. (2021), "Financial literacy or investment experience: which is more
influential in cryptocurrency investment?", International Journal of Bank Marketing,
https://doi.org/10.1108/IJBM-11-2020-0552
Abstract

Purpose – The purpose of this study was to investigate how financial literacy and investment

experience impact cryptocurrency investment behavior and explore which factor is more

influential in cryptocurrency investment.

Design/methodology/approach – Using a sample of U.S. individual investors from the 2018

National Financial Capability Study (NFCS) Investor Survey, a three-step hierarchical logistic

regression was conducted following a model-comparison approach. In addition, a mediation

analysis was conducted using the KHB method to further explore the mediating effect of

investment experience between financial literacy and cryptocurrency investment.

Findings – This study found that while both financial literacy and investment experience were

positively associated with investing in cryptocurrencies, investment experience was more

influential in cryptocurrency investment. The findings also demonstrated that investment

experience, especially risky asset holding, had a significant mediating effect between subjective

financial knowledge and cryptocurrency investment behavior.

Practical implications – The findings of this study offer insight to researchers by providing a

deeper understanding of the determinants of cryptocurrency investment in the United States. This

study also provides detailed implications for financial institutions, financial professionals, and

policymakers to guide rational cryptocurrency investment behavior.

Originality/value – This study is one of the initial attempts to explore the determinant factors in

cryptocurrency investment, an area that has rarely been studied in the literature.

Keywords Cryptocurrency investment; Financial literacy; Investment experience; Social

Cognitive Theory

Paper type Research paper

1. Introduction

Financial investments have experienced tremendous development from simple

investment in common stocks, bonds, mutual funds to more advanced financial derivatives

including forwards, options, and futures in the past decades (Ayedh et al., 2020). Along with the

blockchains’ invention, the creation of cryptocurrencies brought the financial markets worldwide

to a new era. The cryptocurrency market has experienced exponential growth in the ten years

following its inception in 2008 (Xi et al., 2020). In 2017, the price of Bitcoin, the leading

cryptocurrency, increased dramatically with a compound annual growth rate of approximately

1,300% (Lammer et al., 2019). With the significant price growth and high returns, an increasing

number of individual investors have considered cryptocurrencies as an investable asset class

despite their extreme volatility (Ji et al., 2019). According to CoinMarketCap, there are over

6,000 cryptocurrencies in existence, including Bitcoin, Ethereum, Ripple, Litecoin, Tether, etc.

with a total market value of $334.33 billion as of October 2020.

Although previous researchers have not reached an agreement on whether

cryptocurrencies have value as a currency, most researchers believe that cryptocurrencies have

value as an investment (Ciaian et al., 2016). While nascent literature has begun to pay attention

to the investment value of cryptocurrencies, including the performance of cryptocurrency funds

(Bianchi and Babiak, 2020) and the role of cryptocurrencies in portfolio diversification (Bouri et

al., 2017; Dyhrberg, 2016), the literature in studying the determinant factors in cryptocurrency

investment is relatively scant.

Previous studies (Krische, 2019; Munnukka et al., 2017) suggested that financial literacy

and investment experience have significant effects on individuals’ investment-related judgments

when making investment decisions. Despite the prominent role of financial literacy and

investment experience in individuals’ investment decision-making, previous research fails to

show empirically validated evidence of the impacts of financial literacy and investment

experience on individuals’ investment behavior in the cryptocurrency context. To fill the

literature gap, the primary purpose of this study was to investigate whether financial literacy and

investment experience impact cryptocurrency investment behavior and explore which factor is

more influential in cryptocurrency investment by using the 2018 NFCS Investor Survey dataset.

This study makes several important contributions to the literature. First, compared to

previous studies (Lim et al., 2013; Liao et al., 2017; Malmendier et al., 2020) that explored

factors affecting investment decisions in the traditional stock market, this study specifically

focused on cryptocurrency investment, an area that has rarely been studied in the literature.

Second, instead of using questions on general financial issues and concepts to measure financial

literacy as in prior research (e.g., Munnukka et al., 2017), this study used specific investment-

related questions to measure financial literacy. Finally, in addition to analyzing the impacts of

financial literacy and investment experience on cryptocurrency investment, this research further

examined the mediating role of investment experience in the relationship between financial

literacy and investing in cryptocurrencies.

The findings of this study offer insight to researchers by providing a deeper

understanding of the roles that financial literacy and investment experience play in

cryptocurrency investment. This study also sheds new light on cryptocurrency investment by

providing detailed implications for researchers, policymakers, financial educators, and financial

professionals in the United States.

2. Literature Review

Despite the popularity of cryptocurrencies as an investment, much remains to be

understood about the factors affecting cryptocurrency investment. The following review of the

literature first summarizes how cryptocurrency investment differs from other investment assets.

Then, the Social Cognitive Theory is introduced as the theoretical framework to explain the

mechanism of cryptocurrency investment. Finally, factors that influence consumers’ investment

in cryptocurrencies are reviewed, and hypotheses are developed based on the theory and previous

literature.

2.1 Cryptocurrency investment

Cryptocurrencies have similarities to stocks, bonds, and commodities, and can be

classified as investments (Baur et al., 2018). In contrast to traditional financial assets, however,

the prices of cryptocurrencies fluctuate significantly (Li et al., 2020). Following the publication

of the Bitcoin whitepaper and the subsequent launch of the Bitcoin network, the price of Bitcoin

increased from zero to almost $20,000 in December 2017 and then dropped back to $4,000 (Ante

et al., 2020). The unusual and large price fluctuations indicate the highly risky and volatile nature

of cryptocurrencies.

Since the first mining of a Bitcoin in 2009, thousands of cryptocurrencies with different

focuses and features have emerged in the market. With different types of cryptocurrencies

claiming to offer distinctive features to investors, it is becoming increasingly difficult for

individual investors to assess the potentials of each type of cryptocurrency (Ong et al., 2015).

Despite their increased popularity, the unfamiliarity of features and theoretical foundations of

cryptocurrencies further increased the potential risks of investing in cryptocurrencies (Yilmaz

and Hazar, 2018).

 Although there is a high probability of losing money, cryptocurrencies have become

investable for retail investors. Many individuals shifted their attention towards cryptocurrencies

and started to include cryptocurrencies in their portfolios (Dyhrberg, 2016). With the growing

awareness and enthusiasm for cryptocurrencies, it becomes crucial to get a better understanding

of the determinants of cryptocurrency investment.

2.2 Theoretical framework

The Social Cognitive Theory was adapted as the theoretical framework in this study. The

Social Cognitive Theory, proposed by Albert Bandura (1989), describes human behavior as a

result of continuous interaction among cognitive, behavioral, and environmental factors in

reciprocal patterns, also known as triadic reciprocal determinism. Based on Social Cognitive

Theory, this study focuses on exploring and examining the factors determining consumers’

cryptocurrency investment. Thus, cryptocurrency investment is the targeted behavior in this

study (see Figure 1).

[Insert Figure 1 here]

The reciprocal influences of cognitive, behavioral, and environmental factors shape

whether a person will engage in specific behavior and why a person engages in that behavior.

Cognitive attainments require the acquisition of domain-relevant knowledge along with the

judgmental rules that apply to the area of activity (Feldman, 1980). When applying the Social

Cognitive Theory to understand factors determining cryptocurrency investment in this study, the

cognitive factor specifically refers to financial literacy. The behavioral factor takes into account a

person's past relevant experiences, which factor into whether behavioral action will occur. When

it comes to analyzing cryptocurrency investment behavior in this study, behavioral factor refers

to consumers’ previous investment experience. Environmental factors usually act as constraints,

and most aspects of the environment do not have influences until they are activated by

appropriate behavior (Bandura, 1989). While investment capital was used to reflect the

constraints to invest in cryptocurrencies, it is not a focus of this study since the environmental

factor needs to be activated to become influential.

In addition to presenting the model of triadic reciprocal determinism, Bandura (1989)

further pointed out the reciprocal causation does not mean that different sources of influences are

of equal strength, some may be stronger than others. Thus, one important research objective of

this study was to explore which factor (financial literacy or investment experience) is more

influential in determining cryptocurrency investment behavior.

2.3 Financial literacy

Financial literacy was found to have a significant impact on financial behavior (Allgood

and Walstad, 2016; Zhao and Zhang, 2020). Remund (2010, p. 284) defined financial literacy as

a measure of the degree to which one understands key financial concepts and possesses the

ability and confidence to manage personal finances through appropriate short-term decision

making and sound, long-range financial planning, while mindful of life events and economic

conditions.

Huston (2010) noted that financial literacy and financial knowledge often are used

interchangeably in the literature. With the emergence of increasing financial literacy research,

more and more researchers agree that financial literacy has two distinguished dimensions –

objective financial knowledge and subjective financial knowledge (Munnukka et al., 2017; Nejad

and Javid, 2018; Sivaramakrishnan et al., 2017). Based on previous research, this study

conceptualizes financial literacy with both objective and subjective financial knowledge. While

objective financial knowledge refers to individuals’ understanding of financial concepts,

principles, and instruments (Lusardi and Mitchell, 2007), subjective financial knowledge refers

to individuals’ confidence in how much they know (Alba and Hutchinson, 2000).

Many previous studies have provided evidence that objective financial knowledge is an

important determinant in investment intention and behavior. Akhtar and Das (2019) found that

objective financial knowledge has a significant positive relationship with investment intention in

stock markets. Kim et al. (2019) also indicated that millennials with higher levels of objective

financial knowledge are more likely to have investments. In addition, higher levels of objective

financial knowledge were found to be positively associated with holding risky financial assets

(Liao et al., 2017), including stocks (Thomas and Spataro, 2018; Van Rooij et al., 2011) and

mutual funds (Chu et al., 2017). However, based on a sample of Japanese investors, a recent

study (Fujiki, 2020) has concluded that the level of objective financial knowledge does not have

a significant relationship with crypto asset ownership. Thus, more research needs to be done to

examine the relationship between objective financial knowledge and cryptocurrency investment.

In addition to objective financial knowledge, further research has also explored the

impact of subjective financial knowledge on investment behavior. Prior literature has shown that

higher levels of subjective financial knowledge are positively related to participating in the

securities market (Yao and Xu, 2015), having investments (Allgood and Walstad, 2016; Henager

and Cude, 2016; Kim et al., 2019), and investing in risky assets, including stocks/mutual funds

(Tang and Baker, 2016) and hedge funds (Bannier and Neubert, 2016). Moreover, Riitsalu and

Murakas (2019) found that subjective financial knowledge has a stronger relationship with

financial behavior than objective financial knowledge.

However, it is worth noting that most previous research used general financial knowledge

to measure both objective and subjective knowledge when exploring the impact of financial
literacy on investment behavior, little attention has been paid to the impact of specific investment

knowledge on having investments, especially risky asset investments. To fill the literature gap,

this study used specific investment-related questions to measure both objective and subjective

financial knowledge and examined whether both objective and subjective financial knowledge

are key determinants of investing in cryptocurrencies, a new type of risky asset investment class.

Thus, it was proposed that

H1: Objective financial knowledge has a positive impact on having cryptocurrency

investment.

H2: Subjective financial knowledge has a positive impact on having cryptocurrency

investment.

2.4 Investment experience

Investment experience refers to individuals’ previous experience in investing in different

financial products and assets (Nicolini et al., 2013). Investment experience is believed to affect

investment decisions, especially new financial product adoption, for individual investors and

households (Malmendier et al., 2020). Specifically, investment experience was found to be a

significant determinant of investing in cryptocurrencies (Xi et al., 2020).

The types of assets held in the portfolio are important reflections of investment

experience (Lim et al., 2013). Previous studies indicated that individuals with more investment

experience are associated with a greater likelihood of investing in more sophisticated investment

products such as stocks and mutual funds (Yao and Xu, 2015). Krische (2019) found that

investment experience in stocks and mutual funds significantly impacts individuals’ investment-

related judgments. Recent literature suggested that individuals who hold stocks are more likely to

own crypto assets (Fujiki, 2020). Lammer et al. (2019) further noted that cryptocurrency
investors hold more than twice as many securities as non-cryptocurrency investors, especially a

significantly larger number of single stocks.

In addition to individuals with large proportions of stock holding, the risky nature of

cryptocurrency investments also attracts individuals who participated in other more risky

investment vehicles such as equity derivatives (Lammer et al., 2019). Thus, risky asset holding

was also used in addition to stock holding to measure investment experience in this study. While

most previous studies (Liao et al., 2017; Fujiki, 2020; Yao and Xu, 2015) used stocks and/or

mutual funds to measure risky assets, this study fills the literature gap using higher-risk

derivatives, including commodities, futures, or options to measure risky asset holding. Therefore,

this study adds to the literature by proposing that

H3: Stock holding has a positive impact on having cryptocurrency investment.

H4: Risky asset holding has a positive impact on having cryptocurrency investment.

While Social Cognitive Theory proposed that a potential relationship exists between

cognitive factors and behavioral factors in determining a specific behavior, little has been studies

about the relationship between financial literacy and investment experience in determining

cryptocurrency investment. Saurabh and Nandan (2018) suggested that financial literacy explains

a wide of financial experiences including borrowing, saving, and investing. In addition,

Purwidianti and Tubastuvi (2019) concluded that financial experience affects individuals’

financial behavior and decision making in the future, indicating a mediating role of financial

experience in the relationship between financial literacy and financial behavior. Based on the

previous literature, this study also examines whether investment experience acts as a mediator

between financial literacy and cryptocurrency investment.

2.5 Control variables

 Both homeownership and household income were included as control variables in this

study to measure investment capital. While homeownership acted as an asset measure of

investment capital, household income was included as a cash flow measure. Previous research

(Cho and Lee, 2006; Li and Qian, 2018; Ostrovsky‑Berman and Litwin, 2019) has shown that

risk tolerance and perceived risk play significant roles in investing in risky financial assets. Thus,

risk-related factors were also controlled in this study. In addition, demographics including

gender, age, race/ethnicity, marital status, education level, employment status, and having

dependent children were also found to influence household investment decisions (Jia et al., 2019;

Liao et al., 2017; Montford and Goldsmith, 2016; Yao and Xu, 2015). Therefore, a series of

demographic variables were included as control variables in this study.

3. Methodology

3.1 Dataset and sample

The 2018 National Financial Capability Study (NFCS) Investor Survey was used for data

analysis in this study. The survey was administered and funded by the Financial Industry

Regulatory Authority (FINRA) Investor Education Foundation to 2,000 individual investors who

had investments outside of retirement accounts and had primary or shared decision-making

responsibility for their households’ investments. To examine the associations between financial

knowledge/experience and cryptocurrency investment, only those who had heard of

cryptocurrencies (e.g., Bitcoin, Ethereum, or Litecoin) were included in this study. In addition,

observations were excluded for respondents who reported “don’t know” or “prefer not to say” to

the questions about cryptocurrency investment, subjective financial knowledge, investment

experience, risk-related variables, and demographics in this study, resulting in a final analytic

sample size of 1,393 respondents.

3.2 Measures

The dependent variable of cryptocurrency investment measures whether respondents had

invested in cryptocurrencies. It was created as a binary variable based on the question, “Have

you invested in cryptocurrencies, either directly or through a fund that invests in

cryptocurrencies?” The variable was coded as 1 if “yes” was selected and 0 if “no” was selected.

Two dimensions of financial literacy – objective financial knowledge and subjective

financial knowledge – were measured separately in this study. Objective financial knowledge,

with a range of 0-10, was measured by the number of correctly answered questions in a total of

10 multiple choice questions about investing. The wording of the questions is shown in

Appendix A. Subjective financial knowledge was a self-assessment of overall knowledge about

investing on a 7-point Likert scale, where 1 represents “very low” and 7 represents “very high.”

Investment experience was measured by two variables, including more than half of stock

holding and risky asset holding. More than half of stock holding was a dichotomous variable

created on the question “How much of your non-retirement portfolio is invested in stocks or

mutual funds that contain stocks?” The variable was coded as 1 if the answer was “more than

half” and 0 otherwise. Similarly, risky asset holding was also created as a dichotomous variable.

The variable had a value of 1 if the respondents owned commodities, futures, or options in their

non-retirement accounts and otherwise 0.

For control variables, risk-related factors, including risk tolerance and perceived risk, are

considered first. Risk tolerance was measured by a 10-point Likert scale where a higher value

implies the respondent is more willing to take risks. Perceived risk was measured on a 5-point
Likert scale that asked about the respondents’ opinion of how risky cryptocurrencies are as an

investment, where 1 represents “not at all risky” and 5 represents “extremely risky.” In addition,

homeownership, household income, and a set of demographic variables, including gender, age,

race/ethnicity, marital status, education level, employment status, and having dependent children,

were also controlled in the analysis.

3.3 Data analysis

In order to explore the impacts of financial literacy and investment experience on

cryptocurrency investment, a three-step hierarchical logistic regression approach was used. Three

hierarchical logistic regression models were built following a model-comparison approach to

examine the additional influence of financial literacy and investment experience over and above

previously investigated risk-related factors, socio-economic status, and demographics. More

specifically, the first model included the control variables as predictors, the financial literacy

variables were included in the second model as predictors, and the investment experience

variables were further added to the third model. In addition, a mediation analysis was conducted

to further explore the relationships among financial literacy, investment experience, and

cryptocurrency investment.

For robustness checks, additional hierarchical logistic regression analyses were

performed by replacing the dependent variable with individuals’ intention to invest in

cryptocurrencies in the future. Respondents who did not provide an answer or who responded

“don’t know” or “prefer not to say” to the question about the intention to invest in

cryptocurrencies were excluded from the robustness checks.

4. Results
4.1 Descriptive statistics

The descriptive results for sample characteristics are shown in Table 1. Among the 1,393

individual investors in the sample, slightly more than 10% of the individuals had invested in

cryptocurrencies, while nearly 90% had no cryptocurrency investment. For the financial literacy

variables, the mean score of objective financial knowledge was 5.56 out of 10, while the mean

score of subjective financial knowledge was 5 out of 7. Moreover, those who had invested in

cryptocurrencies had significantly lower levels of objective financial knowledge and higher

levels of subjective financial knowledge than those who had not invested in cryptocurrencies.

For risk-related variables, the average perceived risk of cryptocurrency was 4.24 on a 5-point

scale, while the average level of risk tolerance was 6.24 on a 10-point scale. Compared to those

who had no cryptocurrency investment, those who had invested in cryptocurrencies had

significantly lower levels of perceived risk and higher levels of risk tolerance.

[INSERT TABLE 1 HERE]

For investment experience, around two-thirds (61.95%) of the individuals in the sample

had more than half of their non-retirement portfolio invested in stocks, and no significant

differences were found in the proportion of having more than half invested in stocks between

cryptocurrency investors and non-cryptocurrency investors. However, there was a huge

difference in risky asset holding. Almost one-half (48.99%) of the cryptocurrency investors had

invested in commodities, futures, or options in their non-retirement accounts, while only less

than one-tenth (9.81%) of the non-cryptocurrency investors owned those risky assets in their

non-retirement portfolio.

In the sample, most individual investors had homeownership (84.64%), and about two-

thirds of the individual investors had household income between $50,000 and $150,000
(63.03%). In addition, the majority of the individual investors in our sample were male

(61.52%), White (81.12%), married (63.53%), aged 55 or above (61.74%), received a bachelor’s

degree or higher (61.45%), employed (53.98%), and had no dependent children (74.01%).

Despite the similarities in gender, marital status, and education level, the compositions by age,

race/ethnicity, employment status, and whether had dependent children between cryptocurrency

investors and non-cryptocurrency investors were quite different. In general, cryptocurrency

investors were young and worked full-time compared to non-cryptocurrency investors. The

proportions of non-White and having dependent children among cryptocurrency investors were

twice that of non-cryptocurrency investors.

4.2 Hierarchical logistic regression

Table 2 presents the odds ratios, standard errors, and model fit statistics obtained from the

hierarchical logistic regression. A series of control variables – including risk-related factors,

homeownership, household income, and other demographic variables – were introduced as

predictors in Model I. Both perceived risk and risk tolerance were found to have significant

relationships with having cryptocurrency investment. While the perceived risk of cryptocurrency

was negatively associated with the likelihood of investing in cryptocurrencies, risk tolerance was

positively associated with the likelihood of having cryptocurrency investment. Those who had an

annual household income of $15,000 or more had significantly lower likelihoods of investing in

cryptocurrencies than those in lower-income categories. It was also observed that the likelihood

of having cryptocurrency investment decreases with the increase of age. The model had a

McFadden R2 of 0.3106. Based on the interpretation that the McFadden R2 values of 0.2 to 0.4

represent the excellent fit and larger values are better than smaller ones (McFadden, 1979),

Model I displayed a pretty good fit.

 [INSERT TABLE 2 HERE]

The financial literacy variables were added in Model II, and the McFadden R2 increased

to 0.3357. Moreover, a log-likelihood-ratio test implied that Model II provided a significant

better model fit than Model I (D = 23.84; df = 2; p < .001). The results showed that a one-point

increase in subjective financial knowledge was associated with a 56% increase in the odds of

having cryptocurrency investment. Thus, H2 was supported. However, H1 was not supported as

there was no statistically significant relationship between objective financial knowledge and

having cryptocurrency investment.

The investment experience variables were factored in Model III, and the McFadden R2

further increased to 0.3780. In addition, a log-likelihood-ratio test also indicated that Model III

predicted cryptocurrency investment more accurately than Model II (D = 40.06; df = 2; p < .001).

More than half of stock holding and risky asset holding were positively associated with having

cryptocurrency investment. More specifically, compared to those who did not have more than

half of their non-retirement portfolio invested in stocks, those who had more than half of stock

holding were 78% more likely to invest in cryptocurrencies. Moreover, individuals who owned

commodities, futures, or options in their non-retirement accounts were 323% more likely to

invest in cryptocurrencies compared to those who didn’t hold any risky assets. Therefore, H3 and

H4 were supported.

4.3 Mediation analysis

It is worth noting that the direct effect of subjective financial knowledge on having

cryptocurrency investment was reduced after adding the investment experience variables to the

model. The result suggests that investment experience variables may act as mediators between
financial literacy and having cryptocurrency investment. Hence, a mediation analysis was

conducted using the KHB method presented in Karlson and Holm (2011).

The KHB method was developed to assess mediation effects in non-linear probability

models like logistic regressions (Li and Qian, 2018). Karlson et al. (2012) showed that in

reduced and full models, coefficients of the variables of interest could differ not only because of

mediating effects but also because of the model’s rescaling. However, the KHB method can

estimate the true amount of mediation by adjusting the rescaling bias that arises in comparisons

across non-linear models (Karlson and Holm, 2011).

The results of the mediation analysis are reported in Table 3. In Table 3, the reduced

model refers to model II in the hierarchical logistic regression that excluding mediators (i.e.,

more than half of stock holding and risky asset holding), while the full model refers to model III

in the hierarchical logistic regression that including the two mediators. The total effect was

captured by the reduced model’s coefficient, the direct effect was measured by the full model’s

coefficient, and the indirect effect was represented by the difference between the two

coefficients. Notably, subjective financial knowledge was found to have a significant indirect

effect and significant total and direct effects on cryptocurrency investment. As shown in Table 3,

the total effect and direct effect of subjective financial knowledge on investing in

cryptocurrencies were 0.405 and 0.339, respectively. The coefficient difference was 0.066,

which represents the indirect effect explained by the aggregation of the mediators. The mediators

explained 16.30% (=0.066/0.405) of the relationship between subjective financial knowledge and

cryptocurrency investment.

The contribution of each mediator to the indirect effect can also be generated from the

KHB method. The results showed that more than half of stock holding only contributed 2.94% to
the indirect effect of subjective financial knowledge on investing in cryptocurrencies, while risky

asset holding contributed 97.06%. The results indicate that risky asset holding is the sole

investment experience to significantly mediate the association between subjective financial

knowledge and cryptocurrency investment. Therefore, the findings demonstrate that individuals

with higher subjective knowledge also hold more risky assets, which can partly explain

individuals with higher subjective knowledge are more likely to invest in cryptocurrencies.

[INSERT TABLE 3 HERE]

4.4 Robustness check

To examine the robustness of the results, the dependent variable was changed to

individuals’ intention to invest in cryptocurrencies. The intention to invest in cryptocurrencies

was created as a binary variable based on the question, “Are you considering investing in

cryptocurrencies in the future?” The intention variable was coded as 1 if “yes” was selected and

0 if “no” was selected. The original dependent variable, cryptocurrency investment, was replaced

with individuals’ intention to invest in cryptocurrencies since the intention is the most immediate

predictor of behavior (e.g., Ajzen, 1991; Sheeran, 2002).

Based on a subsample of 1,219 individual investors who responded “yes” or “no” to the

intention question, the hierarchical logistic regression analyses were conducted again. The results

summarized in Table 4 show that the effects of subjective financial knowledge, more than half of

stock holding, and risky asset holding were consistently positive and significant on the intention

to invest in cryptocurrencies. The results remain the same as the previous estimates. Thus, we

conclude that subjective financial knowledge, stock holding, and risky asset holding had robust

positive relationships with cryptocurrency investment.

[INSERT TABLE 4 HERE]

5. Discussion and Implication

Based on the Social Cognitive Theory, this study was the first to investigate the roles of

financial literacy and investment experience in determining cryptocurrency investment. Using

data from the 2018 NFCS Investor Survey, this study contributes to the literature by showing that

while both financial literacy and investment experience had significant positive impacts on

having cryptocurrencies, investment experience had a greater impact on cryptocurrency

investment behavior than financial literacy. The empirical findings also demonstrate that

investment experience, especially risky asset holding, had a significant mediating effect between

subjective financial knowledge and cryptocurrency investment. This study further adds to the

literature by providing detailed implications for researchers, policymakers, financial institutions,

and financial professionals in the United States.

With respect to financial literacy, only subjective financial knowledge was found to be

positively associated with investing in cryptocurrencies, while the relationship between objective

financial knowledge and holding cryptocurrencies was not statistically significant. The findings

demonstrate that subjective financial knowledge is more important than objective financial

knowledge in predicting cryptocurrency investment behavior. The results are consistent with the

findings of Allgood and Walstad (2016) that subjective financial knowledge is related to

investment behaviors, regardless of the level of objective financial knowledge. Although

objective financial knowledge was found not to significantly impact having cryptocurrency

investment, Fujiki (2020) suggested that specific knowledge of crypto-assets might be more

important than general financial knowledge in crypto asset ownership. Thus, financial educators

and financial advisors are encouraged to provide cryptocurrency investors with specific crypto
assets knowledge and guide them to accurately assess their subjective knowledge to avoid

underconfidence or overconfidence.

In line with prior research (Xi et al., 2020), investment experience was found to be a

significant determinant of investing in cryptocurrencies. Along with previous studies (e.g.,

Lammer et al., 2019; Liao et al., 2017; Yao and Xu, 2015), this study used individuals’ holdings

of other risky investable assets, including stocks and derivatives, to examine the impact of

investment experience on cryptocurrency investment. The results showed that both stock holding

and risky asset holding had significant positive associations with cryptocurrency investment. The

findings indicate that more experienced individuals, especially those who hold more high-risk

sophisticated investment products, are more likely to invest in cryptocurrencies. The findings

also imply that the portfolios of cryptocurrency investors are riskier than non-cryptocurrency

investors as they also hold larger proportions of stocks and derivatives in addition to the crypto

assets. Financial institutions are encouraged to design and provide virtual investment tools to

help individual investors gain necessary practical experiences through participating in virtual

investment transactions.

The findings of this study also showed that compared to financial literacy, investment

experience had a more significant impact on cryptocurrency investment. The results suggest that

investment experience is more influential than financial literacy in predicting cryptocurrency

investment behavior. In addition, investment experience, especially risky asset holding, was

found to play a mediating role in the relationship between subjective financial knowledge and

investing in cryptocurrencies. The results indicate that the likelihood of investing in

cryptocurrencies for individuals with higher subjective financial knowledge can be further

enhanced by increasing investment experience and holding more risky assets. The findings also
imply the changes in investment strategies that individual investors will experience as their

experiences grow. That means, with the increases in investment experience, individuals will tend

to invest in more risky assets to obtain high returns by using the ability to tackle risky situations

learned from their experience to manage their investments effectively.

Cryptocurrency is a high-risk investment, and risk-related factors, including perceived

risk and risk tolerance, were observed to have significant influences on cryptocurrency

investment. The results showed that the perceived risk of cryptocurrencies had a direct negative

effect on investing in them. That is, the riskier an individual considers the cryptocurrencies are,

the lower his/her willingness to invest in cryptocurrencies. In addition, self-assessed risk

tolerance was found to be significantly positively associated with cryptocurrency investment

behavior. Consistent with the conclusion of previous research that higher risk tolerance was

associated with a higher propensity to invest in riskier assets (Li and Qian, 2018), this study

found that individuals who were more willing to take risks were more likely to invest in

cryptocurrencies. Although many regulating authorities had warned about the risks associated

with cryptocurrencies in most Western countries (Lammer et al., 2019), formal regulation of

cryptocurrency investment is still insufficient. Financial professionals are strongly encouraged to

classify cryptocurrency products into different risk classes to reflect the true levels of potential

risks to help investors get accurate risk perceptions and ensure that only individuals with

corresponding risk tolerance levels can buy those products.

Compared to the general individual investors in the sample, cryptocurrency investors are

to a greater proportion of young adults. In addition, this study revealed that age was negatively

related to cryptocurrency investment. The results indicate that young adults, especially those

aged between 18 and 34, are the main force of current cryptocurrency investment in the United
States. One explanation for this phenomenon is that young adults are more exposed and familiar

with blockchain technologies and are more enthusiastic about investing in technology-based new

investment products, while older individual investors are more conservative in emerging

investment products and are inclined to maintain their previous investment habits and tend to

invest in products they are aware of. Also, more than one-fifth of the cryptocurrency investors in

our sample had a household income level of less than $35,000, which indicates their financial

vulnerability. Considering the high-risk nature of cryptocurrencies, the government should

discourage vulnerable individual investors from buying, holding, or selling cryptocurrencies.

Due to the young and financially vulnerable characteristics of cryptocurrency investors in the

United States, further research is needed to focus on consumer financial protection and financial

vulnerability in the marketing of investment products.

6. Limitations and Future Research

Due to the limitation of the dataset, the sample only consists of investors who have

investments outside of their retirement accounts. Therefore, there might be a potential selection

bias. Also, we were unable to distinguish between direct cryptocurrency investment and indirect

cryptocurrency investment based on the dataset used in this study. However, individuals

investing indirectly in cryptocurrencies through a fund that invests in cryptocurrencies may not

have the same characteristics or motivations as those who invest directly in cryptocurrencies.

Future researchers may consider focusing only on direct cryptocurrency investors and compare

whether there are significant differences between direct cryptocurrency investors and indirect

cryptocurrency investors.
 Although both financial literacy and investment experience were found to have

significant associations with having cryptocurrencies, it remains unknown whether there are

causal relationships based on the survey data used in this study. Future researchers may consider

conducting experiments to further investigate the causal relationships between financial literacy,

investment experience, and cryptocurrency investment.

While types of assets held in the non-retirement portfolio were used to measure

investment experience in this study, investment experience can also be measured by variables

such as years of investment and dollar value of the investors’ portfolio. Thus, it may be

beneficial in future studies to measure investment experience from multiple dimensions and

investigate how different investment experience dimensions affect cryptocurrency investment

behavior differently.

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Figure 1

Theoretical framework based on the Social Cognitive Theory

Cognitive factor
Financial literacy

Cryptocurrency
investment

Behavioral factor Environmental factor

Investment experience Investment capital
Table 1

Descriptive statistics of the sample

Descriptive Statistics
Invest in Cryptocurrencies
Variables Full Sample Yes No
(N = 1,393) (n = 149) (n = 1,244)
Mean (S.D.) Mean (S.D.) Mean (S.D.) t
Objective financial knowledge (0-10) 5.56 (2.33) 4.32 (2.26) 5.70 (2.30) -7.03***
Subjective financial knowledge (1-7) 5.00 (1.23) 5.56 (1.31) 4.94 (1.20) 5.59***
Perceived risk (1-5) 4.24 (0.91) 3.39 (1.21) 4.34 (0.80) -9.38***
Risk tolerance (1-10) 6.24 (2.17) 7.29 (2.09) 6.11 (2.15) 6.48***
% % % 𝜒2
More than half of stock holding 2.14
Yes 61.95 67.79 61.25
No 38.05 32.21 38.75
Risky asset holding 166.48***
Yes 14.00 48.99 9.81
No 86.00 51.01 90.19
Homeownership 10.71**
Yes 84.64 75.17 85.77
No 15.36 24.83 14.23
Household income level 19.63**
Less than $35,000 11.92 20.81 10.85
$35,000 and below $50,000 10.12 7.38 10.45
$50,000 and below $75,000 21.61 24.16 21.30
$75,000 and below $100,000 19.38 21.48 19.13
$100,000 and below $150,000 22.04 18.12 22.51
$15,000 or more 14.93 8.05 15.76
Gender 0.25
Male 61.52 63.76 61.25
Female 38.48 36.24 38.75
Age 226.07***
18-34 12.06 45.64 8.04
35-44 11.70 22.15 10.45
45-54 14.50 13.42 14.63
55-64 23.40 13.42 24.60
65 or older 38.34 5.37 42.28
Race/Ethnicity 39.49***
White 81.12 61.74 83.44
Non-white 18.88 38.26 16.56
Marital status 0.56
Married 63.53 60.40 63.91
Non-married 36.47 39.60 36.09
Education level 8.25
 Less than college 12.99 16.78 12.54
Some college 17.52 20.13 17.20
Associate's degree 8.04 11.41 7.64
Bachelor's degree 35.10 32.21 35.45
Post graduate degree 26.35 19.47 27.17
Employment status 80.79***
Self employed 9.69 10.74 9.57
Work full-time 37.40 65.77 34.00
Work part-time 6.89 8.73 6.67
Unemployed 6.47 7.38 6.35
Retired 39.55 7.38 43.41
Dependent children 71.51***
Yes 25.99 55.03 22.51
No 74.01 44.97 77.49
Note. *p < .05; **p < .01; ***p < .001.
Table 2

Hierarchical logistic regression results

Model I Model II Model III

Variables
Exp(𝛽) S.E. Exp(𝛽) S.E. Exp(𝛽) S.E.
(Intercept) 3.36 0.72 0.65 0.83 0.37 0.88
Financial literacy
Objective knowledge 0.91 0.05 0.94 0.05
Subjective knowledge 1.56*** 0.10 1.40*** 0.10
Investment experience
More than half of stock holding 1.78* 0.24
Risky asset holding 4.23*** 0.24
Risk-related factors
Perceived risk 0.50*** 0.10 0.53*** 0.11 0.54*** 0.11
Risk tolerance 1.16** 0.05 1.08 0.05 1.06 0.06
Homeownership 1.27 0.28 1.13 0.29 1.10 0.30
Household income level
(Ref: < $35,000)
$35,000 - $50,000 0.46 0.45 0.49 0.47 0.46 0.48
$50,000 - $75,000 0.67 0.36 0.78 0.36 0.69 0.38
$75,000 - $100,000 0.70 0.38 0.78 0.39 0.69 0.41
$100,000 - $150,000 0.48 0.39 0.58 0.40 0.45 0.43
$15,000 or more 0.35* 0.48 0.35* 0.50 0.31* 0.52
Male 1.24 0.23 1.22 0.23 1.06 0.24
Age (Ref: 18 - 34)
35 - 44 0.39** 0.29 0.37** 0.30 0.42** 0.32
45 - 54 0.21*** 0.32 0.20*** 0.33 0.20*** 0.34
55 - 64 0.16*** 0.35 0.16*** 0.36 0.19*** 0.37
65 or older 0.06*** 0.53 0.05*** 0.54 0.07*** 0.57
White 0.71 0.23 0.79 0.24 0.79 0.25
Married 1.44 0.25 1.40 0.26 1.48 0.27
Education level
(Ref: Less than college)
Some college 0.97 0.37 0.98 0.38 1.27 0.40
Associate's degree 1.29 0.43 1.12 0.44 1.56 0.46
Bachelor's degree 0.76 0.35 0.77 0.36 0.89 0.39
Post graduate degree 0.95 0.38 1.08 0.39 1.26 0.42
Employment status
(Ref: Self employed)
Work full-time 1.19 0.35 1.17 0.36 1.43 0.38
 Work part-time 1.49 0.48 1.75 0.49 1.95 0.52
Unemployed 0.56 0.50 0.56 0.51 0.79 0.54
Retired 0.71 0.51 0.74 0.52 0.86 0.54
Dependent children 1.35 0.25 1.22 0.26 1.26 0.27
-2 Log Likelihood 653.29 629.45 589.39
McFadden R2 0.3106 0.3357 0.3780
Note. N = 1,393. The dependent variable is cryptocurrency investment.
*p < .05; **p < .01; ***p < .001.
Table 3

Coefficients comparison between models including and excluding mediators (KHB method)

Cryptocurrency investment
Coefficient Standard error P > |z|
Objective financial knowledge
Reduced (excluding mediators) -0.058 0.054 0.290
Full (including mediators) -0.063 0.055 0.248
Difference 0.005 0.010 0.591
Subjective financial knowledge
Reduced (excluding mediators) 0.405 0.100 0.000
Full (including mediators) 0.339 0.101 0.001
Difference 0.066 0.018 0.000
Note. N = 1,393. Reduced models refer to Model II in Table 2 while full model refer to Model III in Table 2.
Table 4

Robustness test

Model I Model II Model III

Variables
Exp(𝛽) S.E. Exp(𝛽) S.E. Exp(𝛽) S.E.
*** *** **
(Intercept) 79.49 0.76 17.50 0.84 13.31 0.87
Financial literacy
Objective knowledge 0.98 0.04 0.99 0.05
Subjective knowledge 1.52*** 0.09 1.37** 0.10
Investment experience
More than half of stock holding 2.23*** 0.23
Risky asset holding 3.99*** 0.26
Risk-related factors
Perceived risk 0.30*** 0.11 0.31*** 0.12 0.29*** 0.12
Risk tolerance 1.25*** 0.05 1.16** 0.05 1.16** 0.06
Homeownership 0.89 0.27 0.76 0.27 0.79 0.28
Household income level
(Ref: < $35,000)
$35,000 - $50,000 0.51 0.42 0.54 0.43 0.50 0.44
$50,000 - $75,000 0.59 0.36 0.64 0.37 0.64 0.38
$75,000 - $100,000 0.32** 0.39 0.32** 0.40 0.30** 0.42
$100,000 - $150,000 0.43* 0.39 0.47 0.40 0.43* 0.41
$15,000 or more 0.15*** 0.49 0.14*** 0.50 0.15*** 0.52
Male 1.66* 0.22 1.55* 0.22 1.49 0.23
Age (Ref: 18 - 34)
35 - 44 0.61 0.32 0.57 0.32 0.69 0.33
45 - 54 0.44** 0.31 0.39** 0.32 0.38** 0.33
55 - 64 0.24*** 0.32 0.22*** 0.33 0.26*** 0.35
65 or older 0.08*** 0.44 0.06*** 0.46 0.08*** 0.48
White 0.60* 0.23 0.61* 0.23 0.61* 0.24
Married 1.23 0.24 1.25 0.25 1.20 0.26
Education level
(Ref: Less than college)
Some college 0.63 0.36 0.66 0.37 0.71 0.39
Associate's degree 1.07 0.42 0.95 0.43 1.19 0.46
Bachelor's degree 0.91 0.33 0.92 0.34 0.99 0.36
Post graduate degree 0.87 0.36 0.94 0.37 0.97 0.39
Employment status
(Ref: Self employed)
Work full-time 0.86 0.33 0.92 0.34 0.95 0.34
 Work part-time 0.45 0.48 0.54 0.49 0.54 0.51
Unemployed 0.88 0.44 1.05 0.45 1.32 0.46
Retired 0.45 0.42 0.53 0.43 0.53 0.45
Dependent children 1.05 0.25 1.00 0.26 0.99 0.27
-2 Log Likelihood 703.59 682.82 642.67
McFadden R2 0.4113 0.4287 0.4623
Note. N = 1,219. The dependent variable is intention to invest in cryptocurrencies.
*p < .05; **p < .01; ***p < .001.
Appendix A

1. If you buy a company’s stock...

1) You own a part of the company
2) You have lent money to the company
3) You are liable for the company’s debts
4) The company will return your original investment to you with interest
5) Don’t know
6) Prefer not to say

2. If you buy a company’s bond...

1) You own a part of the company
2) You have lent money to the company
3) You are liable for the company’s debts
4) The company will return your original investment to you with interest
5) Don’t know
6) Prefer not to say

3. If a company files for bankruptcy, which of the following securities is most at risk of
becoming virtually worthless?
1) The company’s preferred stock
2) The company’s common stock
3) The company’s bonds
4) Don’t know
5) Prefer not to say

4. In general, investments that are riskier tend to provide higher returns over time than
investments with less risk.
1) True
2) False
3) Don’t know
4) Prefer not to say

5. The past performance of an investment is a good indicator of future results.

1) True
2) False
3) Don’t know
4) Prefer not to say

6. Over the last 20 years in the US, the best average returns have been generated by:
1) Stocks
2) Bonds
3) CDs
4) Money market accounts
5) Precious metals
6) Don’t know
 7) Prefer not to say

7. What is the main advantage that index funds have when compared to actively managed funds?
1) Index funds are generally less risky in the short term
2) Index funds generally have lower fees and expenses
3) Index funds are generally less likely to decline in value
4) Don’t know
5) Prefer not to say

8. Which of the following best explains why many municipal bonds pay lower yields than other
government bonds?
1) Municipal bonds are lower risk
2) There is a greater demand for municipal bonds
3) Municipal bonds can be tax-free
4) Don’t know
5) Prefer not to say

9. You invest $500 to buy $1,000 worth of stock on margin. The value of the stock drops by
50%. You sell it. Approximately how much of your original $500 investment are you left with
in the end?
1) $500
2) $250
3) $0
4) Don’t know
5) Prefer not to say

10. Which is the best definition of “selling short?”

1) Selling shares of a stock shortly after buying it
2) Selling shares of a stock before it has reached its peak
3) Selling shares of a stock at loss
4) Selling borrowed shares of a stock
5) Don’t know
6) Prefer not to say

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